How to Buy a Condo for Investment With Ten Percent Down

Investment properties typically require higher down payments.

Buying a condominium unit for investment purposes rather than your own primary residence can be an uphill battle. Depending on the housing market and the flexibility of the mortgage lending environment, you may find it impossible to buy an investment condo without a 25 percent or 20 percent down payment. If you find a lender that can finance your purchase with only 10 percent down, however, the lender usually must ensure that the condominium is fiscally sound and that you can afford to be a landlord. Condos and investment properties generally present a higher level of risk for mortgage lenders, therefore, the loans are harder to qualify for.

1

Ensure you have the income or means to buy a condo and keep up the payments. A down payment, even if it's only 10 percent, must come from your own accounts. Obtain your recent income tax return and all statements for credit obligations. Divide your total monthly recurring debt payments, including a projected condo payment, by your gross monthly income to calculate your debt-to-income ratio, or DTI. Lenders require you to maintain reserves equal to several months of mortgage principal, interest, property taxes, homeowners insurance and condo association fees. In addition to 10 percent down, you need to show checking, savings, retirement or other investment account statements containing readily available funds that cover the down payment and reserve requirement.

2

Locate a lender that has experience financing non-owner-occupied condo properties. These lenders may be few and far between when the condo housing market is slow or experiencing high rates of foreclosure. Ask real estate agents experienced in condo sales for lender referrals. Find agents in real estate brokerages located near condo developments that interest you, or who advertise in these areas. Also, ask a condo project's sales office agent for lender referrals, or ask the condo's in-house lender if it offers financing for an investment condo with only 10 percent down.

3

Request certain association-related disclosures from the seller. Give your lender this information so it can determine whether the condo qualifies for financing. Put this request for condo disclosures in the purchase agreement. Ask specifically for the seller to obtain a condo questionnaire or certification form completed by the association. Also ask for the association's budget and its covenants, conditions and restrictions -- or "CC&Rs.;" The lender reviews the budget to determine if the condo project has financial problems, a high rate of investment units, and too many foreclosures or condo owners in arrears on their condo fees. Such findings generally mean you can't finance a condo with a conventional loan, regardless of your down payment amount.

4

Provide the lender with proof of the 10 percent down payment amount. Lenders generally require two or three months of bank statements, or other investment account statements, to verify sufficient down payment funds.

5

Deposit the 10 percent down payment amount with the escrow holder after you receive loan approval. You also must deposit funds to cover closing costs if you haven't otherwise negotiated a seller credit to cover the fees. Closing costs typically equal 3 to 5 percent of the condo sale price and pay for lender fees, escrow and title fees, and certain prepaid items. The escrow holder notifies you of the exact amount due before the closing date and you must present certified funds.

Tip

You must have acceptable debt-to-income ratios that show you can afford to pay your primary housing costs, plus condo maintenance, vacancy and negative cash flow amounts. A strong DTI for your total debt obligations is no higher than the low 40 percent range.